Rupee falls 30 paise to 85.88 against US dollar in early trade

The rupee depreciated 30 paise to 85.88 against the US dollar in early trade on Friday, weighed down by intensifying geopolitical tensions between India and Pakistan.

Forex traders said geopolitical tensions between India and Pakistan have sparked risk-off sentiment in the market leading to the rupee weakness. Besides, increased demand for the US dollar further dented investor sentiments.

At the interbank foreign exchange, the domestic unit opened at 85.88 against the greenback, registering a fall of 30 paise over its previous close.

On Thursday, the rupee saw its steepest single-day fall in more than two-and-a-half years and settled 81 paise lower at 85.58 against the US dollar on Thursday, weighed down by heightened geopolitical tensions between India and Pakistan.

Pakistan's armed forces launched multiple attacks using drones and other munitions along the entire western border on the intervening night of May 8-9.

The rupee fell to 85.78 on Thursday on the escalation of hostility between the two countries from a high of 84.52 and opened lower on a rise in the dollar index and could move to 86.50 unless the Reserve Bank of India (RBI) steps in to sell dollars, said Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors LLP.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading higher by 0.01% at 100.65.

Brent crude, the global oil benchmark, rose 0.30% to $63.03 per barrel in futures trade.

"During any war-like scenario investors usually flee out towards safe-haven assets, causing capital outflows from the market and weakening the currency in the short-term," CR Forex Advisors MD - Amit Pabari said.

However, this weakness is likely to stay for the short-term, as the war tensions ease out and strong fundamental data, Indian rupee is poised to appreciate in the medium term, Pabari added.

In the domestic equity market, the 30-share BSE Sensex declined 589.96 points or 0.73 per cent to 79,744.85, while the Nifty fell 195.50 points or 0.81% to 24,078.30.

Foreign institutional investors (FIIs) bought equities worth ₹2,007.96 crore on a net basis on Thursday, according to exchange data.